Gaeta v Ridgeback Investments Pty Ltd (in Liquidation) - [2009] SASC 330

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
GAETA v RIDGEBACK INVESTMENTS PTY LTD (IN LIQUIDATION)
[2009] SASC 330
Judgment of Judge Withers a Master of the Supreme Court
23 October 2009
PROCEDURE
Originating process under Corporations Act - interlocutory application filed by plaintiff seeking declarations under s 31 of Supreme Court Act - held application contrary to Corporations Rules and incompetent.
Corporations Act 2001 s 536(1); Corporations Rules 2003 (SA) r 2.2, referred to.
Bratovic v SBM Argentinian Bar and Grill Pty Ltd & Ors [2005] SASC 431; Bovis Lend Lease Pty Ltd v Wily & Anor [2003] 45 ACSR 612; Vink v Tuckwell (2008) 216 FLR 309, considered.

GAETA v RIDGEBACK INVESTMENTS PTY LTD (IN LIQUIDATION)
[2009] SASC 330

JUDGE WITHERS. In this action on 7 November 2006 an order was made by the Court winding up Ridgeback Investments Pty Ltd. Mr Mark Hall was appointed as the liquidator.
On 22 November 2007 the liquidator provided a Report to Creditors, one of whom was the plaintiff Giovanni Gaeta. A copy of that report is exhibited to the affidavit of Mr Gaeta of 29 July 2008 as Document 8a. Part of the assets of the company included a property at Beaumont which was subject to a mortgage and also subject to a caveat, charging order, and warrant of sale registered on the title by a Mr Tarca. In the course of his administration the liquidator appointed solicitors to provide him with advice in relation to Mr Tarca’s claim to this property. This resulted in a negotiated agreement that surplus funds from the sale of the property were to be held in trust to allow Mr Tarca’s claim as a secured creditor to be dealt with at a later date. The sale of the Beaumont property proceeded and realized a surplus of only $1,070.00.
The report to creditors included details of remuneration sought by the liquidator of approximately $43,000.00 for fees to that date and a further $20,000.00 for future fees. On the same date the liquidator also sent to creditors a Notice of Meeting on 6 December 2007, together with a proof of debt form and proxy form for use at the meeting – see Exhibit “MH-32” to the affidavit of Mark Hall sworn 11 December 2008 – Document 12af.
On 3 December 2007 the plaintiff’s solicitor wrote to the liquidator requesting details of the legal fees and liquidator’s fees referred to in the Report to Creditors. On 4 December 2007 a reply was sent by the liquidator to those solicitors setting out details of the fees. A copy of that letter is Exhibit “MH-34” to the affidavit of Mr Hall – Document 12ah.
The meeting of creditors was held on 6 December 2007. The minutes of that meeting is Exhibit “MH-35” to Mr Hall’s affidavit sworn 11 December 2008 or Document 12ai. At that meeting those minutes record that when the topic of liquidator’s remuneration was discussed Mr Gaeta and his solicitor initially left the meeting to have a private discussion. When they returned Mr Gaeta moved and Mr Tarca seconded that the remuneration of the liquidator for the period 7 November 2006 to 16 November 2007 be approved in the amount of $43,550.90 plus GST. Mr Gaeta also later moved that the remuneration of the liquidator for the period from 17 November 2007 to finalization be approved up to a maximum amount of $20,000.00 plus GST, with such amount to be paid without further reference to the creditors. That resolution was carried.
On 29 July 2008 the plaintiff filed a Notice of Intention to Apply for Review of Remuneration. This was by way of a Form 16A and appeared to rely on the provisions of s 473 of the Corporations Act (“CA”). The company duly appeared. Affidavits were filed by the plaintiff’s solicitor as to events at the creditors’ meeting and by the liquidator as to the progress of the liquidation.
On 5 June 2009 the liquidator gave Notice of Intention to Apply for Remuneration supported by his affidavit filed on the same day.
On 10 June 2009 I dismissed the plaintiff’s notice of application for a review of remuneration. I found that the plaintiff had no standing in any event to bring an application under s 473 as the fixing of the remuneration of the liquidator had been by resolution of creditors. In those circumstances it was only a member of the company that could seek relief under s 473 of the CA. The plaintiff was not a member.
During the course of the argument that day counsel for the plaintiff conceded, quite properly, that his client had no standing to bring an application under s 473 but asserted that he was entitled to invoke s 536 of the CA. I refused to accept without notice an oral application for relief under s 536 of the CA.
On 3 July 2009 the plaintiff issued an interlocutory process seeking orders that there be an inquiry pursuant to s 536(1) of the CA as to the adequacy of the liquidator’s compliance with s 473(11) of the CA, as to the reasonableness of the work done, and further that the liquidator’s remuneration be determined by the Court pursuant to s 473(3)(b)(ii) of the CA. That interlocutory process was supported by an affidavit of the plaintiff’s solicitor.
There then followed a host of interlocutory applications. On 27 July 2009 the defendant applied for an order staying any inquiry if ordered until the costs ordered to be paid by the plaintiff to the defendant in respect of the wasted 10 June 2009 hearing be satisfied – see FDN 20. A further interlocutory application was filed on the same day by the defendant seeking approval of various liquidator’s fees – FDN 21. These applications were supported by an affidavit of Mr Hall – FDN 22.
A Notice of Objection to the defendant’s application for approval of various fees was filed by the plaintiff out of time on 4 August 2009.
In the meantime the defendant filed a Short Form Claim for Costs to which the plaintiff filed a response. On 24 August 2009 the defendant filed an interlocutory application seeking directions about the costs claim and in particular that its costs be recoverable on a time-costing basis – FDN 32.
An amended interlocutory process was filed by the defendant on 21 August 2009 – FDN 29 – seeking to approve various liquidator’s fees in amended form, and a fifth affidavit of Mr Hall was filed in support of that application – FDN 30.
A further amended interlocutory process was filed by the plaintiff on 24 August 2009 – FDN 31 – in which the plaintiff sought orders pursuant to s 31 of the Supreme Court Act 1935 and s 536(1)(b) of the CA and Rule 7.11 of the Corporations Rules 2003. The relief applied for by the plaintiff in that amended interlocutory process was as follows:
1A.A declaration that ~~the Liquidator has not complied with s 473(12) of the Act and that, accordingly~~ the resolution of creditors dated 5 December 2007 purportedly approving the Liquidator’s remuneration is invalid.
1B.A declaration that the legal and other costs and expenses incurred by the Liquidator in connexion with the alleged debt of Mr Jason Tarca were not properly incurred within the meaning of s 556(1)(a) of the Act.
1C.A declaration that the legal costs incurred by the Liquidator in resisting the plaintiff’s earlier proceedings herein were incurred in breach of the Liquidator’s fiduciary duty to act at all times in the best interests of the Company and its creditors (including the plaintiff) and to preserve the assets of the Company for the benefit of its creditors and are, accordingly, not lawfully recoverable from the plaintiff or the Company.
1.Alternatively to the foregoing, that there be an inquiry concerning:
1.1.   the adequacy of ~~compliance with s 473(12) of the Act of~~ the liquidator’s report to creditors and the validity of the resolution dated 5 December 2007 whereby the creditors purported to approve the liquidator’s remuneration and disbursements;
1.2.   the reasonableness and necessity of work done and legal costs incurred in connexion with the winding up of Ridgeback Investments Pty Ltd ACN 060 845 632 (In Liquidation) particularly in connexion with the alleged debt of Mr Jason Tarca;
1.3.   the reasonableness and necessity of work done and costs incurred in resisting the plaintiff’s earlier proceedings herein;
~~2.That the liquidator’s remuneration be determined by the Court pursuant to section 473(3)(b)(ii) or, alternatively, s 536(1) of the Act.~~
3.That the liquidator pay the plaintiff’s costs of this interlocutory process.
4.Such further or other order as this Honourable Court may deem fit.
That application, which was filed on 24 August 2009, came on for argument before me on 25 August 2009. The other applications were listed for mention. There was some confusion as to precisely which application was to be argued.
Underlying all this activity is a claim by the plaintiff that there were unnecessary costs negligently incurred in the liquidation in relation to the claim of Mr Tarca. Substantial legal fees and liquidator’s fees had been incurred without any investigation being undertaken at an early stage of the basis on which Mr Tarca had obtained a judgment against the company. That judgment was a default judgment. When an examination of the claim eventually took place it was discovered that the contract upon which that default judgment was based did not involve the company Ridgeback Investments at all and that there was no basis for the claim against the company. It appears that this was accepted by Mr Tarca. In the meantime, according to the plaintiff, a large number of fees both for the liquidator and his solicitors had been unnecessarily incurred thereby leading to a reduced dividend to the only significant creditor of the company, namely Mr Gaeta.
When the applications came on for hearing before me on 25 August 2009 the defendant’s counsel objected to the plaintiff’s last amended interlocutory process arguing that the amended application, paragraphs 1A to 1C by which the plaintiff sought various declarations pursuant to s 31 of the Supreme Court Act, should be summarily dismissed. Counsel argued that it was an application for final relief within the meaning of r 17 and r 28(1) of the Supreme Court Rules 2006, and further that it was not an application required or permitted by the CA to be made to the Court in accordance with r 2.2(1) of the Corporations Rules 2003 (SA). This issue was then argued as a preliminary point. Because of the confusion as to precisely what was to be argued I allowed each party to file written submissions on this issue. The plaintiff filed its submissions on 8 September 2009 – FDN 34, and the defendant filed submissions on 9 September 2009 – FDN 36.
There was also argument on 25 August 2009 on the interlocutory process relating to the costs of the earlier proceedings – FDN 32 – and various directions were given.
The essence of the argument for the defendant on the preliminary issue was that the action for declaratory relief pursuant to s 31 of the Supreme Court Act or pursuant to the Court’s inherent jurisdiction was an action that was required to be brought by way of originating process in this Court in accordance with r 35 or r 34 of the Supreme Court Rules.
The defendant placed reliance on the decision of his Honour Judge Lunn in Bratovic v SBM Argentinian Bar and Grill Pty Ltd & Ors [2005] SASC 431 where his Honour had to deal with an interlocutory application for the appointment of a provisional liquidator pursuant to the Corporations Act which application was issued as part of proceedings in this Court’s ordinary jurisdiction. His Honour considered this issue in [18] to [19] of his reasons. In considering the provisions of Corporations Rule 2.2(1), his Honour said at [18]:
[18] Where CR2.2(1) refers to “in a proceeding already commenced in the Court” it means a proceeding to which the Corporations Rules apply by virtue of CR 1.3(1), ie its meaning is to be read down in CR 2.2(1) to make it the same as its meaning in CR1.3(1). It does not refer in CR 2.2(1) to a proceeding to which Corporations Rules do not apply because they are governed solely under R1.05 by the Civil Rules. If “proceeding” meant any proceeding in CR2.2(1), it would enable applications under the Act to be mixed in with any other type of proceeding in the Court. It is significant that while CR1.3(1) and CR2.2(2) are prefaced by “unless the Court otherwise orders” this qualification is not imposed on CR2.2(1). Its omission, when compared with CR1.3(1) and CR2.2(2), would suggest that it was not intended that CR2.2(1) should have a wide field of operation. It makes good sense to limit CR2.2(1) to proceedings under the Act as then there is little potential mischief for sub paragraph (b) being used to tack other applications under the Act onto existing proceedings in the Court. While the Court may still have other powers to be able to exercise some control over the use of CR2.2(1), this restricted meaning suggests its operation is limited to where proceedings have as their subject matter the affairs of a particular company.
In the present case the plaintiff is endeavouring to utilise an interlocutory process in a CA action pursuant to r 2.2(1) to advance a cause of action that in my view is not required or permitted by the CA. Rather it is a claim for equitable relief pursuant to s 31 of the Supreme Court Act and the general jurisdiction of the Court. If that were to be permissible then it seems to me that this would open the door for a party with standing to endeavour to bring in CA proceedings by interlocutory process actions for damages for negligence or a variety of other actions not related to or emanating from the CA notwithstanding that the company might in some way be involved.
A “plaintiff” is defined in r 1.5 of the Corporations Rules as follows:
plaintiff means a person claiming relief (except interlocutory relief) under the Corporations Act, the ASIC Act or the Cross-Border Insolvency Act, whether in the originating process or not.
An “applicant” is defined as follows:
applicant means a person claiming interlocutory relief in a proceeding.
It seems incongruous to me that an applicant in an interlocutory proceeding would have a broader sphere of actions available to it than might be available to a plaintiff or a company in these proceedings. I note that the form for an interlocutory process under the Corporations Rules, which is Form 3, commences with the following:
This application is made under *section/*regulation [number] of the *Corporations Act/ *ASIC Act/* Cross-Border Insolvency Act/*Corporations Regulations.
In arguing that the process adopted was valid, counsel for the plaintiff conceded that the declarations sought in 1A to 1C were all in the nature of final relief and that they were declarations of right pursuant to s 31 of the Supreme Court Act. He argued that they would finally dispose of three discrete questions as to the validity of certain resolutions – see paragraph 2 of the plaintiff’s written submissions – FDN 34.
Plaintiff’s counsel argued that because interlocutory relief under the CA did not exclude final relief there was therefore nothing about the matter that prevented the application being made in the form that had been lodged. He argued that support for that proposition was derived from the wording of CR 2.2(4) that described an interlocutory process as requiring it to be in accordance with Form 3 and the obligation to state:
(i)if appropriate, each section of the Corporations Act … under which the application is made; and
(ii)the relief sought. [Underlining mine.]
This, it was argued, gives a broader width to the type of relief that can be sought under an interlocutory process than may be sought under an originating process the description of which in r 2.2(3)(b) did not include the words “if appropriate”.
In my view, final relief can be sought in a CA action by way of interlocutory process. However, it is also my view that such relief must be relief required or permitted by the Act, that it to say, relief emanating from the provisions of the Act. To seek to utilise an interlocutory process in a CA action to obtain relief emanating from a cause of action external to and not arising out of the CA is in my view impermissible.
Reference was made by the plaintiff to the Bratovic case. The plaintiff asserted that in paragraphs [18] and [19] of his reasons Judge Lunn stated that the underlying policy was that any interlocutory process pursuant to r 2.2 had to relate to aspects of the affairs of the corporation that had been wound up or that was otherwise the subject of process from the originating process. The plaintiff used the phrase “umbrella action” to suggest that therefore the relief that he was seeking fell within the umbrella of proceedings related to the winding up. To preclude the plaintiff from pursuing that relief in this action would unnecessarily and expensively interfere with a sensible and pragmatic approach to the resolution of relevant claims.
In my view, his Honour Judge Lunn in Bratovic is carefully seeking to direct that the use of an interlocutory process in a CA action is as a matter of law and practical commonsense to be confined to seeking relief, either interim or final, of a type required or permitted by the Act. In other words the relief sought must emanate from the provisions of the CA.
A case of Bovis Lend Lease Pty Ltd v Wily & Anor [2003] 45 ACSR 612 was cited by the plaintiff in support of his argument. This is a decision of Austin J in the Supreme Court of New South Wales in a matter where the Court entertained an application for declarations of right by way of interlocutory process under r 2.2. In [7] of that decision, his Honour says:
[7] … Mr Gilbert and Tui Gilbert Holdings have filed an interlocutory application in this proceeding [being the proceeding for the winding up of the company under which a winding up insolvency order had been made], seeking a declaration that the winding up of the company was terminated on Mr Javorsky’s appointment as administrator, or alternatively on the passing of the resolution approving the company’s entry into the deed of company arrangement, or the execution of the deed. In the alternative, the applicants seek orders under s 482 terminating or staying indefinitely the winding-up order. …
But it is apparent from [374] of the reasons that those declaratory orders were sought pursuant to s 447A of the CA in relation to a company under administration. In other words, the interlocutory process was seeking relief required or permitted or emanating from the CA itself. His Honour said at [376]:
[376] I received submissions as to whether s 447A would permit the making of the declarations that Mr Gilbert seeks. On the view I take in the present matter, it is unnecessary for me to decide that point, which was also left undecided in Mercy v Wanari [(2000) 157 FLR 107; 35 ACSR 70].
In the end analysis the interlocutory process was dismissed. In my view that authority is of no particular assistance to the plaintiff.
For the foregoing reasons, I find that the plaintiff’s applications in paragraphs 1A, 1B and 1C of the further amended interlocutory process are incompetent and are therefore struck out.
This leaves the balance of the plaintiff’s application for determination. It is an application for an inquiry under s 536(1)(b). I note in passing the comments of Robson J in the matter of Vink v Tuckwell (2008) 216 FLR 309 at 323, [84] to [86], as to what needs to be put before the Court for it to exercise its discretion to order such an inquiry.
I will hear the parties as to the re-listing of the plaintiff’s amended interlocutory application. I reserve the question of costs. I certify fit for counsel.